Paramount Uses Tom Cruise to Overcome Super Bowl Absence and Lead May Index
Sports stocks fell for the third-straight month as the JohnWallStreet Sports Stock Index couldn’t withstand the broad bear market. The Sportico index slipped about 3% to finish at a 19-month low but saw bright spots in video game publishers, broadcast networks and WWE.
Paramount (PARA) led the 40-component sports index with a 18% gain in May, suggesting there may still be one media power greater than the Super Bowl: Tom Cruise. Paramount, formerly ViacomCBS, started the month reporting a 6% drop in revenue of its largest segment, TV media, because it didn’t broadcast the Super Bowl this year, after generating $545 million from it last year. The drop reinforced the difficulties ahead for traditional media—part of the reason the company changed its name and is emphasizing its streaming platform, which includes a large selection of sports content. The blockbuster opening of Cruise’s Top Gun: Maverick, which Paramount is distributing, rallied shares into month’s end, with the movie collecting $248 million by the middle of its Memorial Day weekend opening. Fellow broadcasters NextStar Media (NXST, up 11%) and Sinclair Broadcasting (SBGI, up 10%) were also gainers in the JohnWallStreet Index this month.
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Electronic Arts (EA) was the second-best performer in the month, up almost 18%, even as it announced its licensing deal with FIFA will expire. The company’s FIFA soccer and Apex Legends, a favorite among esports competitors, both saw record engagement in the first part of the year, according to a Credit Suisse analyst report. While EA will no longer be able to label its soccer game as FIFA or feature the World Cup in game play, the company still has licensing arrangements with the major soccer leagues as well as players and will save itself perhaps $180 million in annual fees to the global soccer body. Other videogame makers, Take Two (TTWO, up 4%) and Activision (ATVI, up 3%), were also among the 11 gainers in the sports index in May.
Another notable gainer was World Wrestling Entertainment (WWE), which rose 14% on signs the company’s stream-first strategy is drawing in more viewers and is laying the groundwork for more frequent media rights sales. WrestleMania 38, the latest version of WWE’s annual showcase, was the second-most-watched programming ever on Peacock, the streaming service from Comcast (CMCSA, up 11%). According to WWE, it trailed only the 2022 Super Bowl.
For most of the 40 stocks in the JohnWallStreet Sports Stock Index, May was another down month in a bear run that has seen the Sportico index retreat from a high of 1,763 in November to a close of 1,185 yesterday. Sports betting-related stocks continue to struggle with the waning enthusiasm for the opening of North American markets. Nine components of the index lost more than 10% in May, including Betway operator Super Group (SGHC, down 27%), Sportradar (SRAD, down 25%), Caesars Entertainment (CZR, down 24%), Genius Sports (GENI, down 20%) and Barstool sports parent Penn National Gaming (PENN, down 13%). The cost of acquiring customers and various data- and state-level rights continues to spook Wall Street.
“There is substantial cash burn at many of these U.S.-facing operators at present, which is alarming, particularly with funding sources closing up and debt markets tightening/dislocating,” said Gambling.com Group co-founder and CEO Charles Gillespie, in an email. Gambling.com (GAMB, down 2%) isn’t part of the sports stock index, but it owns Bookies.com and Rotowire, both of which have strong sports-betting exposure. “While I believe that the underlying business of these gambling operators has brilliant unit economics and is highly profitable, the pace and scale of the rollout of regulated online gambling in the U.S. has been breathtaking and has required enormous investments in each new state launching, which has pressured balance sheets.”
The broader bear market in stocks hasn’t helped sports betting stocks, either, as inflation fears have caused investors to recalculate what a fair value is for future growth. End-of-month action in the broad market suggests the market could be exhausting itself to the downside and taking a fresh look at growth stocks, however. The S&P 500 eked out the slimmest of gains for May and is down about 13% for 2022. The sports stock index is down 22% by comparison.
“I don’t think investors are specifically negative on online gambling stocks; it is more of the case that investors are negative on the particular category of technology-driven, unprofitable, high growth stocks—which happens to overlap with online gambling,” said Gillespie. “I believe that the power of the online gambling cash flow, at scale, will be impossible for investors to ignore.”
Sportico’s JohnWallStreet sports stock index is meant to reflect the state of the sports business through 40 equally weighted U.S.-traded companies. To be included in the benchmark index, stocks must be traded in sufficient volume on a U.S. exchange and have a minimum market cap of $50 million. Companies that fail to meet the requirements, experience a significant corporate event (think: bankruptcy, sale) or pivot in strategy away from professional sports may be dropped from the index. The index is rebalanced quarterly.
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